File photo: Finmeccanica CEO Giuseppe Orsi posing for photographers during a convention in Rome.
"Giuseppe Orsi, the head of Italian defence and aerospace giant Finmeccanica, was arrested on Monday in relation to a probe into international corruption.

NEW DELHI: Uncertainty looms over the future of the Rs 3,600-crore, February 2010 deal between India and UK-based Agusta Westland for the purchase of 12 helicopters, following the sensational arrest of Finmeccanica Chief Executive and Chairman Giuseppe Orsi in Italy for corruption in the Indian deal.

"Giuseppe Orsi, the head of Italian defence and aerospace giant Finmeccanica, was arrested on Monday in relation to a probe into international corruption. He is suspected of involvement in the payment of bribes regarding the sale to the Indian government of 12 helicopters produced by Finmeccanica's subsidiary AgustaWestland," Italian news agency Ansa said.

Following the arrest, the government promptly ordered a probe by the Central Bureau of Investigation, even though it has been known for months now that Italian authorities are investigating Finmeccanica and its agents for corruption in the helicopter deal.

Defence Minister AK Antony told Parliament in December last year that his ministry had noticed media reports about the Italian investigation and had sought details from the governments of Italy and the UK through the foreign ministry. "However, in the absence of any specific information, the government has not started any formal probe in this regard by Indian agencies," the minister said.

The arrest of the Finmeccanica CEO by the Italian police forced India's hand as the government of Italy has still not shared any details of the ongoing investigations there.

"We have not received any response from them so far on that, the argument being that this is in Italy a judicial process," a external affairs ministry spokesperson said. India had signed the deal for the purchase of 12 three-engine AW-101 helicopters for the Indian Air Force's communication squadron, which ferries VIPs such as the prime minister, president and VP.

Italian prosecutors suspect that 51 million euros were paid in kickbacks to swing the deal for Agusta Westland through middlemen. Agusta Westland CEO Bruno Spagnolini has also been placed under house arrest.

"The contract signed with M/s Agusta Westland includes specific contractual provisions against bribery and the use of undue influence as well as an integrity pact," the defence ministry said in a statement.

Integrity pact in defence purchases means that the buyer can cancel the contract at any stage without assigning reasons if it becomes clear that the bidder had used undue influence to win the contract. Orsi's arrest in Italy has sent shockwaves through the global defence industry.

It has also become a major scandal in Italy, where general elections are scheduled two weeks from now. Finmeccanica is among Italy's largest industrial conglomerates and ranks among the world's top seven defence and aerospace companies by size. The company is part-owner of Eurofighter GmbH, whose Eurofighter Typhoon was one of the two finalists, along with French company Dassault Aviation's Rafale jet, in the $20-billion global tender to supply the Indian Air Force with 126 medium multi-role combat aircraft (MMRCA).

The development comes two days ahead of a state visit by French President Francoise Hollande. It is widely expected that the ongoing MMRCA negotiations with Dassault Aviation will figure in Hollande's meetings here. It is unclear what fallout, if any, the Agusta scandal will have on the conclusion of the MMRCA deal, already several years behind schedule.

Orsi, a well-known executive in Italy, has denied wrongdoing. In a statement, Finmeccanica said the operating activities and ongoing projects of the company will continue as usual.

"In addition, Finmeccanica expresses support for its chairman and CEO, with the hope that clarity is established quickly whilst reaffirming its confidence in the judges." Finmeccanica shares fell 14 per cent in Milan. "There is an issue with the governance of Finmeccanica at the moment and we will deal with it," Italian Prime Minister Mario Monti told state-owned RAI television.

An Oct 2012 order by an Italian court noted allegations that Swiss consultant Guido Haschke was paid 51 million euros to secure the deal, part of which was routed back to Italy to pay off political parties there. Investigators had tapped phone conversations between Haschke and Finmeccanica's former India head Girasole Paolo.